Michael Robert Milken , 1946-, American financial executive, b. Van Nuys, Calif. Nicknamed the "junk bond king," he was an executive at Drexel Burnham Lambert, Inc., where he transformed corporate takeovers and financing by the use of high-yield junk bonds . At the height of his success in the 1980s, Milken's personal wealth was legend; according to the government, Drexel paid Milken $296 million in 1986 and $550 million in 1987. In 1989 a federal grand jury indicted Milken for violations of federal securities and racketeering laws. He pled guilty to securities fraud and related charges in 1990, and the government dropped the more serious charges of insider trading and racketeering. Milken was fined and sentenced to prison for ten years; in 1991 his sentence was reduced to two years plus three years probation. Barred from the securities business for life, Milken worked as a strategic business consultant after his release from prison. The Securities and Exchange Commission charged that this work was a violation of his probation, and in 1998 Milken settled with the SEC and paid the government $42 million in fees that he had earned plus interest. Milken, who had prostate cancer, established (1993) a foundation to underwrite a search for its cure; he is also a founder (1996) of Knowledge Universe, an educational services company.

Bibliography: See studies by C. Bruck (upd. ed. 1989), F. Bailey (1992), J. Kornbluth (1992), B. J. Stein (1992), M. Zey (1993), and D. Fischel (1995).

Michael Milken

Michael Milken (born 1946) was nicknamed the" junk bond king," after he pled guilty to charges that he amassed hundreds of millions of dollars through questionable financial dealings involving high-yield bonds. Milken served prison time then embarked on a life of legitimate business and philanthropic activity.

Michael Milken acquired a dubious reputation during the 1980s, when he pled guilty to illegal financial dealings that reaped millions of dollars in profits. He emerged from prison as a legitimate entrepreneur. His probation officer, Michalah Bracken, praised Milken and wrote in a probation report that "[Milken] has contributed a significant portion of his earnings to charitable concerns, while retaining a modest lifestyle without obvious trappings of wealth. … Among Milken's strengths are his inability to accept defeat, his total commitment, … and his vision concerning business and society … despite his fall, Milken is an individual still able to contribute to society and to create positive changes in the future."

Ideal Beginnings

Michael Robert Milken was born in Los Angeles on July 4, 1946 and grew up in Encino, California. Milken's paternal grandparents were Jewish immigrants from Poland. His mother, Ferne Milken, was energetic and ambitious. His father, Bernard Milken, worked for an accounting firm. At tax time, the entire Milken family helped Bernard Milken with his work. Michael Milken, an excellent math student, helped with the tax returns by the age of ten. School held little challenge for young Milken, who was extremely bright as a child. His teenage ambition was to become a millionaire by the age of 30. Sports came easily to Milken as well, and he excelled at baseball.

Milken attended the University of California at Berkeley during the height of the Free Speech Movement. Initially he majored in mathematics, but changed to business in hopes of finding a challenge. Milken graduated from the University of California with highest honors.

Milken began his financial career at the university, informally as a fraternity member, when he invested money for his fraternity brothers in return for 50 percent of the profits. With no returns on losses to his clients, Milken had virtual assurance of profitability. He was also a student at Berkeley when he developed a theory about low-grade "junk" bonds-He believed that under a revised rating system junk bonds might pose a worthwhile risk. Conventional bond ratings ranked bonds on the basis of past performance-a company's respective ratio of debt to equity was used to determine whether its securities qualified as investment grade. Milken questioned this limited method of rating bonds. He believed that it was inaccurate and that other issues factored heavily into the potential for return on investments: cash flow, business plans, personnel, and corporate vision among others.

In August 1968, Milken married his high school sweetheart, Lori Hackel. The couple moved to Philadelphia, where Milken attended the Wharton School at the University of Pennsylvania. In 1970, he went to work for Drexel Corporation as assistant to the chairman and later became head of bond research. When Drexel merged with Burnham and Company in 1973, Milken headed the non-investment-grade bond-trading department, an operation that earned a remarkable 100 percent return on investment. By 1976, Milken's income was estimated at $5 million a year.

In 1977, Milken returned to his home state of California. He moved his High-Yield Bond Department to Los Angeles and purchased a house in Encino formerly owned by the movie star, Clark Gable. Milken's younger brother, Lowell, also worked at the Los Angeles office. In the early 1980s, Drexel-Burnham sponsored junk-bond-financed leveraged buyouts and hostile takeovers. Milken eventually made over $500 million by manipulating the junk bond and high-yield bond markets. In the mid-1980s, Drexel-Burnham began using a new technique, called the "highly confident" letter, a correspondence designed to convince commercial banks to finance corporate takeovers. The letters of confidence stated that Drexel was "highly confident" that the funds could be raised to finance the deal. During the company's first attempt at this scheme, Milken raised $1.5 billion in 48 hours.

Shady Dealings with Boesky

In 1982, Drexel-Burnham took on a new client, financier Ivan Boesky. Milken's dealings with Boesky violated the securities laws, and Boesky later accused Milken of insider trading. In 1985, when the Securities and Exchange Commission (SEC) investigated hostile takeovers and "insider" trading (stock trading based on illegally obtained confidential information), the investigation focused on 12 transactions, eight of which involved Drexel-Burnham.

In June 1989, Milken resigned from Drexel to form his own company, International Capital Access Group. This new venture was supposed to help workers and companies in building businesses, but Milken's legal problems with the SEC prevented him from achieving his goal at that time. Milken initially decided to fight the SEC case but eventually pled guilty to six counts of violating federal securities and tax laws in the 98-count indictment. Milken was convicted and sentenced in 1990. At his trial he relied on a defense strategy that stressed his generous and philanthropic interests. He showed "deep remorse" for his crimes, and requested to perform community service rather than to serve prison time. He issued an apology and admitted that he cheated clients and plotted with Boesky to accomplish a corporate raid. Judge Kimba Wood sentenced Milken to probation on one count and two years of prison time for each of the five other counts (ten years total). Milken received a further sentence to perform 1800 hours of community service each year, for three consecutive years following his release from prison.

By March 1991, Milken was in prison at a minimum security work camp in Pleasanton, California. He served 22 months for securities fraud and other crimes and paid $600 million in fines to the government. The Federal Deposit Insurance Corporation (FDIC) sued Milken for $10 billion for crimes against the savings and loan industry. In a prison interview with Jesse Kornbluth, author of Highly Confident: The Crime and Punishment of Michael Milken, Milken justified his mistakes on a philosophical level. He explained that, "I believed in giving anonymously, praising others, and only speaking well of others. You can't live in this country today with those beliefs … When people find out, your philanthropy becomes tainted, you did it 'for some other purpose' … All those years, I thought the marketplace or the customer was the final judge. I was wrong. In the short run, it's the media."

Back to Business

Milken completed his prison time in 1993 and resumed business dealings. He co-founded a company called Education Entertainment Network, that produces business videos and CD/ROMs. In 1996, he and Larry Ellison founded Knowledge Universe, a company dealing in a diverse variety of goods and services, including day care, executive education, corporate training, and toys. By March 1998, the SEC investigated Milken once again. He admitted to no wrongdoing and, instead, agreed to pay a fine of $47 million in response to SEC accusations that he served as a broker in violation of an SEC order that banned him from such activity. The SEC cited deals involving MCI, Rupert Murdoch's News Corp., and Ron Perelman's New World Entertainment.

Cancer Threat

At the age of 46 Milken was diagnosed with advanced prostate cancer. He discussed his illness with Time journalist Leon Jaroff, "To say that the biopsy results were devastating would be an understatement. I remember lying in bed with my wife and talking about the 'Book of Job,' wondering how many more challenges were coming my way. I was in a state of depression." Milken took drugs to inhibit his body from producing testosterone and underwent supplementary radiation therapy that put the cancer into remission. The potentially fatal experience inspired Milken to focus on healthy living, and to alter his eating habits. He eliminated meat from his diet and, in 1998 along with co-author Beth Ginsberg, published a cancer-fighting cookbook that stressed low-fat, low-calorie recipes.

Public recollection of Milken's dubious business dealings often overshadowed the potential impact of his generous spirit. Although he tried to improve society through fund-raising and philanthropy, public suspicion lingered and hampered his efforts. In 1995, he donated $5 million to a large Jewish secondary school in Los Angeles. In gratitude the school was to be renamed Milken Community High School of Stephen Wise Temple until parents and students at the institution raised concerns about the name change. They questioned the sound judgment of naming a high school for Michael R. Milken, a federal felon of dubious character. Detractors of Milken speculated that his unethical business practices contributed to rampant corporate takeovers and may have slowed U.S. economic growth and contributed to recession. As Milken himself noted, far less media coverage focused on his legitimate activity, as in 1995 when he established a foundation to encourage the search for a cure for cancer. He pledged $25 million in support to the organization over a five-year period. The program, designated to increase public awareness of cancer and to support research on the disease, provides funds for basic and clinical research, recruits scientists, sponsors scientific meetings, and strives to increase public awareness of cancer.

Further Reading

Bruck, Connie, The Predators' Ball: the Junk-Bond Raiders and the Man Who Staked Them, New York, Simon and Schuster, 1988.

Fischel, Daniel R., Payback: the Conspiracy to Destroy Michael Milken and his Financial Revolution, Harperbusiness, 1995.

Kornbluth, Jesse, Highly Confident: The Crime and Punishment of Michael Milken, William Morrow, 1992.

Stein, Benjamin, A License to Steal: the Untold Story of Michael Milken and the Conspiracy to Bilk the Nation, Simon & Schuster, 1992.

Stewart, James, Den of Thieves, Simon & Schuster, 1991.

Forbes, November 6, 1995.

Fortune, May 1, 1995.

New York, July 6, 1998.

New York Review of Books, May 26, 1994.

New York Times, September 25, 1998.

Time, April 1, 1996.

U.S. News & World Report, October 25, 1993; March 9, 1998.

Wall Street Journal, June 16, 1989; April 25, 1990; February 27, 1998.

"Down Payment On Justice," available at http://www.IntellectualActivist.com (February 23, 1998). □

MILKEN, MICHAEL 1946-

Junk bond king

Outsider

Michael Milken rivaled Ivan Boesky as the predominant symbol of 1980s-style capitalism, a fitting comparison since the two men worked together and eventually fell together. Milken, like Boesky, was an outsider on Wall Street, a business arena that has been traditionally dominated by upper-crust Ivy League-educated men from a WASP background. What Milken brought to finance was a creative understanding of how to raise money and a single-minded obsession with doing just that.

Obsession

Michael Milken came from a middle-class Jewish family living in the San Fernando Valley of Los Angeles. He attended the University of California at Berkeley and graduated in 1968 majoring in business administration, a continuation of his childhood fascination with financial issues. After receiving an MBA from the Wharton School of Business, Milken went to work for Drexel Burnham Lambert. Drexel, if not the largest Wall Street firm, was respected. Through its various incarnations the company could trace its lineage back to J. P. Morgan. Milken was smart, energetic, and often described as arrogant. Despite his success Milken was oblivious to the normal signs of Wall Street success—he paid little attention to his clothes or the type of car he drove, and he wore a bad toupee. Milken often hired people whom he believed to be committed to their families and then made them work so many hours that they rarely saw them. In the late 1970s Milken began promoting the use of a diversified portfolio of high-yield bonds (known as junk bonds). The Wall Street establishment frowned upon investing in those bonds since the companies floating the bonds often lacked a credit rating. Milken stressed diversified investments as a way to overcome the risks associated with such investments and to bring substantial profits.

Junk Bonds

In 1985 fifteen hundred people attended the annual Drexel High-Yield Bond Conference in Beverly Hills to pay tribute to Michael Milken. In 1979 only about sixty people had attended the invitation-only conference. They were typical of Milken's clients with Drexel Burnham Lambert. Milken's clients tended to be small and medium-sized companies that were run by entrepreneurs. Milken had begun approaching them in the late 1970s and early 1980s. Because of their small size, lack of credit history, or their leveraged capital structure (they owed a lot of money), these companies had not made investment grade by the rating agencies and thus could not raise money by issuing bonds. In order to raise money, these companies had to resort to short-term loans from banks. Banks placed severe restrictions on the companies as part of the price of the loan. Drexel and Milken served these people by underwriting their bonds for the public marketplace. Michael Milken's firm used junk bonds to raise millions of dollars in relatively restriction-free capital for these companies. By 1985 the junk bond market had reached $100 billion. Milken's clients included people who managed thrift institutions, insurance companies, public and private pension funds, and college endowments, not just the reckless or the desperate. Milken argued that "investors obtained better returns on the same amount of money invested in low-grade issued than on high-grades." That, however, proved not to be true when investments in junk bonds were compared with investments in stocks during the course of a decade.

Outlaw

In September 1988 the Securities and Exchange Commission filed a lawsuit against Drexel, naming Milken in two counts of insider trading, charges stemming from its investigation of Ivan Boesky. As a result of the highly publicized trial Milken was asked to leave the firm. The trial was of such a public nature that Milken began a public-relations campaign to recruit black support in case his jury had black members, even gaining some support from Jesse Jackson. Milken was eventually indicted on ninety-eight charges, including some racketeering charges. In November 1990 Milken received a ten-year prison sentence. In 1991 he began serving his sentence in a federal penitentiary, where he earned forty cents a day. By 1992, lawyers working for Milken announced that Milken had paid $500 million in cash to settle civil claims against him; this represented 80 percent of Milken's remaining wealth. When he completed his prison term, Milken's wealth was estimated at around $125 million.

Philanthropist

In 1993 Milken was released from prison, but on the very day that he was released he was diagnosed with prostate cancer. By 1994 Milken and his family had formed the Association for the Cure of Cancer of the Prostate, to which the Milken family pledged $5 million per year for five years. Milken received praise from President Bill Clinton for his foundation.

Sources:

Connie Bruck, The Predators Ball: The Junk Bond Raiders and the Man Who Staked Them (New York American Lawyer/Simon & Schuster, 1988);

James B. Stewart, Den of Thieves (New York: Simon & Schuster, 1991).